Chapter 2: Project, Program, and Portfolio Selection

TRUE/FALSE

1. Organizations—both large and small—cannot undertake most of the potential projects identified
because of resource limitations and other constraints.

ANS: T PTS: 1 REF: 38

2. When using the hierarchical four-stage planning process for selecting projects, you must start at the
bottom of the pyramid.

ANS: F PTS: 1 REF: 41

3. Organizations need to narrow down the list of potential projects to those projects that will be most
beneficial.

ANS: T PTS: 1 REF: 42

4. In practice, organizations usually use a single approach to select projects.

ANS: F PTS: 1 REF: 43

5. An organization should consider only projects with a negative NPV if financial value is a key criterion
for project selection.

ANS: F PTS: 1 REF: 44

6. Projects with higher NPVs are preferred to projects with lower NPVs if all other factors are equal.

ANS: T PTS: 1 REF: 44

7. Money earned today is worth more than money earned in the future, primarily due to inflation.

ANS: T PTS: 1 REF: 45

8. With respect to NPV, all organizations start discounting in Year 0 (immediately).

ANS: F PTS: 1 REF: 46

9. From the viewpoint of NPV only, if Project 2 has a higher NPV than Project 1, Project 1 should be
chosen.

ANS: F PTS: 1 REF: 47

10. The required rate of return is the minimum acceptable rate of return on an investment.

ANS: T PTS: 1 REF: 48

11. Payback occurs in the year when the cumulative benefits minus costs reach zero.

ANS: T PTS: 1 REF: 49

 12. Most crucial projects, such as drug development or major transportation projects, will achieve payback
in less than a year.

ANS: F PTS: 1 REF: 50

13. If you assign weights to criteria based on percentage, the sum of all the criteria’s weights must total
100 percent.

ANS: T PTS: 1 REF: 50

14. A weighted scoring model is a tool that provides a systematic process for selecting projects based on
many criteria.

ANS: T PTS: 1 REF: 50

15. According to Dr. Robert Kaplan and Dr. David Norton, a balanced scorecard rejects most traditional
financial measures.

ANS: F PTS: 1 REF: 52

16. Low- or medium-priority projects that can be finished in less time than high-priority projects should
always be completed first.

ANS: F PTS: 1 REF: 54

17. The main goal of programs is to obtain benefits and control not available from managing projects
separately.

ANS: T PTS: 1 REF: 56

18. Organizations should only pursue projects that have the best financial value.

ANS: F PTS: 1 REF: 56

19. Some core projects can be high risk, have high value, and require good timing.

ANS: T PTS: 1 REF: 59

20. Just as projects are unique, so are project portfolios.

ANS: T PTS: 1 REF: 60

MULTIPLE CHOICE

1. The SWOT analysis looks at ____.

a. Services, Weaknesses, Opportunities and Threats
b. Strengths, Weaknesses, Objectives and Threats
c. Strengths, Weaknesses, Opportunities and Threads
d. Strengths, Weaknesses, Opportunities and Threats
ANS: D PTS: 1 REF: 39
 2. In the four-stage planning process for selecting projects, ____ is the last step.
a. project planning c. business area analysis
b. resource allocation d. strategic planning
ANS: B PTS: 1 REF: 41

3. Projects should first and foremost address business ____.

a. portfolios c. needs
b. ventures d. practices
ANS: C PTS: 1 REF: 43

4. Projects that address competitive ____ are much more likely to be successful because they will be
important to the organization’s competitive position.
a. value c. tactics
b. products d. strategy
ANS: D PTS: 1 REF: 43

5. One method for selecting projects based on broad organizational needs is to first determine whether
they meet three important criteria: need, ____, and will.
a. ambition c. funding
b. practicality d. vision
ANS: C PTS: 1 REF: 44

6. Three primary methods for determining the projected financial value of projects include net present
value analysis, return on investment, and ____ analysis.
a. growth c. environmental impact
b. payback d. efficiency
ANS: B PTS: 1 REF: 44

7. An organization should consider only projects with a ____ NPV if financial value is a key criterion for
project selection.
a. positive c. zero
b. negative d. well-defined
ANS: A PTS: 1 REF: 44

8. A positive NPV means the return from a project exceeds the ____ cost of capital—the return available
by investing the capital elsewhere.
a. fixed c. alternative
b. variable d. opportunity
ANS: D PTS: 1 REF: 44

9. According to the ____ value of money, a dollar today is worth more than a dollar tomorrow.
a. financial c. economic
b. time d. discretionary
ANS: B PTS: 1 REF: 45

10. You calculate cash ____ by subtracting costs from benefits, or expenses from income.
a. flow c. budgets
b. statements d. structure
 ANS: A PTS: 1 REF: 45

11. Project managers must be sure to check with their organization to find out its guidelines for when
discounting starts, what discount rate to use, and what ____ the organization prefers.
a. charts c. format
b. technique d. results
ANS: C PTS: 1 REF: 46

12. A ____ rate is the rate used in discounting future cash flows.
a. prime c. cash flow
b. markup d. discount
ANS: D PTS: 1 REF: 47

13. Which of the following formulas is used by Excel to calculate NPV?

a. =npv() c. =npv(discount rate, range of cash flows)
b. =npv(range of cash flows) d. =npv(discount rate)
ANS: C PTS: 1 REF: 47

14. ____ is the result of subtracting the project costs from the benefits and then dividing by the costs.
a. Return on investment c. NPV
b. Internal Return Rate d. The payback period
ANS: A PTS: 1 REF: 48

15. Given discounted benefits of $516,000 and discounted costs of $243,200, your ROI is ____ %.
a. 10 c. 112
b. 89 d. 212
ANS: C PTS: 1 REF: 48

16. ____ period is the amount of time it will take to recoup—in the form of net cash inflows—the total
dollars invested in a project.
a. Return c. Accrual
b. Payback d. Residual
ANS: B PTS: 1 REF: 49

17. Payback occurs in the year when the cumulative benefits minus costs reach ____.
a. ($1400) c. $0
b. ($100) d. $100
ANS: C PTS: 1 REF: 49

18. A(n) ____ scoring model is a tool that provides a systematic process for selecting projects based on
many criteria.
a. weighted c. variable
b. biased d. opportunity
ANS: A PTS: 1 REF: 50

19. After assigning weights for the criteria and scores for each project, you calculate a weighted score for
each project by multiplying the weight for each criterion by its score and ____ the resulting values.
a. multiplying c. dividing
 b. adding d. subtracting
ANS: B PTS: 1 REF: 51

20. If you create the weighted scoring model in a spreadsheet, you can enter the data, create and copy
formulas, and perform a “____” analysis.
a. scenario c. what-if
b. query d. hypothetical
ANS: C PTS: 1 REF: 51

21. You can establish weights by assigning ____.

a. results c. scores
b. values d. points
ANS: D PTS: 1 REF: 52

22. ____ are new requirements imposed by government, management, or some external influence.
a. Directives c. Opportunities
b. Problems d. Thresholds
ANS: A PTS: 1 REF: 54

23. After deciding which projects to pursue, organizations need to decide if it is advantageous to manage
several projects together as part of a(n) ____.
a. aggregate c. cluster
b. program d. group
ANS: B PTS: 1 REF: 54

24. The goal of ____ portfolio management is clear: to help maximize business value to ensure enterprise
success.
a. investment c. project
b. interest d. program
ANS: C PTS: 1 REF: 56

25. ____ should be formed and continuously updated to help the organization as a whole make better
strategic decisions.
a. Monitors c. Projects
b. Portfolios d. Programs
ANS: B PTS: 1 REF: 57

26. An IT project in the ____ category could help transform the business.
a. growth c. venture
b. assessment d. discretionary
ANS: C PTS: 1 REF: 59

27. An IT project in the ____ category must be accomplished to run the business.
a. ancillary c. growth
b. redundant d. core
ANS: D PTS: 1 REF: 59
 28. An organization can view project portfolio management as having ____ levels, from simplest to most
complex.
a. two c. six
b. five d. ten
ANS: B PTS: 1 REF: 60

29. In portfolio management the “____” task should occur first.

a. prioritize projects on a list
b. apply modern portfolio theory
c. divide projects into investment categories
d. put all projects in one list
ANS: D PTS: 1 REF: 60

30. Studies show that one of the main reasons people quit their jobs is because ____.
a. there is too much risk
b. they feel they do not make enough money
c. they feel they do not make a difference
d. they feel overworked
ANS: C PTS: 1 REF: 60

COMPLETION

1. ____________________ planning involves determining long-term objectives by analyzing the

strengths and weaknesses of an organization, studying opportunities and threats in the business
environment, predicting future trends, and projecting the need for new products and services.

ANS: Strategic

PTS: 1 REF: 39

2. A SWOT analysis involves the examination of Strengths, Weaknesses, Opportunities, and

____________________.

ANS: Threats

PTS: 1 REF: 39

3. ____________________ considerations are often an important aspect of the project selection process,
especially during tough economic times.

ANS: Financial

PTS: 1 REF: 44

4. ____________________ analysis is a method of calculating the expected net monetary gain or loss
from a project by discounting all expected future cash inflows and outflows to the present point in
time.

ANS:
Net present value
NPV
 Net present value (NPV)
NPV (Net present value)

PTS: 1 REF: 44

5. NPV analysis is a method for making equal ____________________ between cash flow for multiyear
projects.

ANS: comparisons

PTS: 1 REF: 45

6. A(n) ____________________ rate is the rate used in discounting future cash flows.

ANS: discount

PTS: 1 REF: 47

7. The annual discount ____________________ is a multiplier for each year that is based on the discount
rate and year.

ANS: factor

PTS: 1 REF: 48

8. ____________________ is the result of subtracting the project costs from the benefits and then
dividing by the costs.

ANS:
Return on Investment
ROI
Return on Investment (ROI)
ROI (Return on Investment)

PTS: 1 REF: 48

9. You can determine a project’s ____________________ by finding what discount rate results in an
NPV of zero for the project.

ANS:
internal rate of return
IRR
internal rate of return (IRR)
IRR (internal rate of return)

PTS: 1 REF: 48

10. ____________________ analysis determines how much time will lapse before accrued benefits
overtake accrued and continuing costs.

ANS: Payback

PTS: 1 REF: 49
11. You can determine minimum scores or ____________________ for specific criteria in a weighted
scoring model.

ANS: thresholds

PTS: 1 REF: 52

12. A balanced ____________________ is a methodology that converts an organization’s value

drivers—such as customer service, innovation, operational efficiency, and financial performance—to a
series of defined metrics.

ANS: scorecard

PTS: 1 REF: 52

13. A(n) ____________________ is a group of projects managed in a coordinated way to obtain benefits
and control not available from managing them individually.

ANS: program

PTS: 1 REF: 55

14. A construction firm using ____________________ of scale can purchase materials, obtain services,
and hire workers for less money if it is managing the construction of 100 houses instead of just one
house.

ANS: economies

PTS: 1 REF: 55

15. A program for IT ____________________ projects might include purchasing new hardware, software,
and networking equipment, or determining standards for IT.

ANS: infrastructure

PTS: 1 REF: 55

16. Grouping related ____________________ into programs helps improve coordination through better
communications, planning, management, and control.

ANS: projects

PTS: 1 REF: 56

17. Project portfolio management focuses on ____________________ issues while individual projects
often focus on tactical issues.

ANS: strategic

PTS: 1 REF: 57

18. The core category of IT projects labeled as ____________________ costs must be funded for a
company to stay in business.
 ANS: nondiscretionary

PTS: 1 REF: 59

19. ____________________ projects helps you see the big picture, such as how many projects are
supporting a growth strategy, how many are helping to increase profit margins, how many relate to
marketing, and how many relate to materials.

ANS: Categorizing

PTS: 1 REF: 60

20. It is important for organizations to develop a fair, consistent, and logical process for selecting projects,
programs, and ____________________.

ANS: portfolios

PTS: 1 REF: 60

ESSAY

1. Provide two examples demonstrating the value of identifying projects through the observation of
day-to-day operations.

ANS:
Although people in organizations identify many potential projects as part of their strategic planning
process, they also identify projects by working on day-to-day operations. For example, a project
manager overseeing an apartment building project might notice that some workers are much more
efficient than others. She might suggest a project to provide standardized training on specific skills. A
marketing analyst might notice that competitors are using new forms of advertising and suggest a
project to respond to this competition. It is important for organizations to encourage workers at all
levels to submit project ideas because they know firsthand what problems they are encountering and
what opportunities might be available.

PTS: 1 REF: 42

2. When creating a weighted scoring model, how do you identify criteria important to the project
selection process?

ANS:
The first step in creating a weighted scoring model is to identify criteria important to the project
selection process. It often takes time to develop and reach agreement on these criteria. Holding
facilitated brainstorming sessions or using software to exchange ideas can aid in developing these
criteria. Some possible criteria for projects include the following:
Supports key business objectives
Has a strong internal sponsor
Has strong customer support
Uses a realistic level of technology
Can be implemented in one year or less
Provides a positive NPV
Has low risk in meeting scope, time, and cost goals.

PTS: 1 REF: 50
3. Describe how problems, opportunities, and directives can drive the project selection process.

ANS:
Problems are undesirable situations that prevent an organization from achieving its goals. These
problems can be current or anticipated. For example, users of an information system might be having
trouble logging on to the system or getting information in a timely manner because the system has
reached its capacity. In response, the company could initiate a project to enhance the current system by
adding more access lines or upgrading the hardware with a faster processor, more memory, or more
storage space.
Opportunities are chances to improve the organization. For example, an organization could implement
a project to train workers on important skills that will make the organization more competitive.
Directives are new requirements imposed by management, government, or some external influence.
For example, a college or university may have to meet a requirement to not collect or use a student’s
social security number.

PTS: 1 REF: 53-54

4. Describe how coordinating housing projects within one program can lead to saving time and
increasing authority.

ANS:
Saving time: Instead of each project team having to perform similar work, by grouping the projects
into a program, one person or group can be responsible for similar work, such as obtaining all the
permits for all the houses. This coordination of work usually saves time as well as money.
Increasing authority: A program manager responsible for building one hundred houses will have more
authority than a project manager responsible for building one house. The program manager can use
this authority in multiple situations, such as negotiating better prices with suppliers and obtaining
better services in a more timely fashion.

PTS: 1 REF: 55

5. Describe the role of the project portfolio manager in relation to the roles of project manager and
program manager.

ANS:
Project managers strive to make their projects successful and naturally focus on doing whatever they
can to meet the goals of their particular projects. Likewise, program managers focus on making their
programs successful. Project portfolio managers and other senior managers, however, must focus on
how all of an organization’s projects fit together to help the entire enterprise achieve success. That
might mean canceling or putting several projects on hold, reassigning resources from one project to
another, suggesting changes in project leadership, or taking other actions that might negatively affect
individual projects or programs to help the organization as a whole. For example, a university might
have to close a campus in order to provide quality services at other campuses. Running any large
organization is complex, as is project portfolio management.

PTS: 1 REF: 57